Despite how much I actually like Zillow, Trulia, Redfin, etc…we’re going to talk about one of my BIGGEST pet peeves out there…and that is the almighty Zestimate and Automated Valuation Models. Enjoy! Add me on Snapchat/Instagram: GPStephan
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Just about every real estate website offers a service where computer calculations look at public record data, recently sold properties, recently listed properties, and then aggregates all of that data to then provide an estimated value of what they think that specific home is worth. It’s a fun concept, and theoretically, it should give you a fairly realistic number of what a specific home is worth. The problem, however…is that it doesn’t.
The problem is that a home’s value is extremely intricate - and public record data only makes up for a small portion of a homes value. Consider this, what Zillow and similar websites do to create their estimate is aggregate public record data of all nearby homes based on Zip Code and Street. They first compile a list of every single home’s LISTED square footage, bedrooms, bathrooms, and lot size. This creates their base from which to work from. From there, they look at recently sold properties within those areas to determine a base price per square foot. They then compare that data with the sale price of every single home and create a guideline of what price they THINK that specific home is worth based on that data. At a very basic level, it works…from a numbers standpoint, you look at how big the home is, how big the lot is, how many bedrooms and bathrooms it is…and you compare it with something similar to that which recently sold within that area. Or they use a combination of average price per square foot, and come up with an average value.
The Washington Post recently did some research, and determined that only HALF of Zillow’s estimates fell within a 5% range of value…that means more than HALF of estimates are off by more than 5% either OVER or UNDER. Zillow itself claims that 75% of homes sell within a 10% range, higher or lower, and 89% of homes sell within a 20% range…I’d just hate to be one of those homes in the remaining 11%.
The reality is that to come up with a value of a property, you really need to calculate it on a case by case basis. You really need to consider every single home on a case by case basis on its own to come up with a reasonable value. This is something that an algorithm isn’t able to do within a reasonable amount of accuracy.
So for anyone out there, it’s important not to rely on Zillow’s estimates. If anything, just ignore them or use them exclusively just for entertainment purposes only.
For business inquiries or paid one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness @gmail.com
Suggested reading:
The Millionaire Real Estate Agent: http://goo.gl/TPTSVC
Your money or your life: https://goo.gl/fmlaJR
The Millionaire Real Estate Investor: https://goo.gl/sV9xtl
How to Win Friends and Influence People: https://goo.gl/1f3Meq
Think and grow rich: https://goo.gl/SSKlyu
Awaken the giant within: https://goo.gl/niIAEI
The Book on Rental Property Investing: https://goo.gl/qtJqFq
Favorite Credit Cards:
Chase Sapphire Reserve - https://goo.gl/sT68EC
American Express Platinum - https://goo.gl/C9n4e3
Join the private Real Estate Facebook Group:
https://www.facebook.com/groups/therealestatemillionairemastermind/
Get $50 OFF FOR A LIMITED TIME: Code THANKYOU50 - The Real Estate Agent Academy: Learn how to start and grow your career as a Real Estate Agent to a Six-Figure Income, how to best build your network of clients, expand into luxury markets, and the exact steps I’ve used to grow my business from $0 to over $120 million in sales: https://goo.gl/UFpi4c
Just about every real estate website offers a service where computer calculations look at public record data, recently sold properties, recently listed properties, and then aggregates all of that data to then provide an estimated value of what they think that specific home is worth. It’s a fun concept, and theoretically, it should give you a fairly realistic number of what a specific home is worth. The problem, however…is that it doesn’t.
The problem is that a home’s value is extremely intricate - and public record data only makes up for a small portion of a homes value. Consider this, what Zillow and similar websites do to create their estimate is aggregate public record data of all nearby homes based on Zip Code and Street. They first compile a list of every single home’s LISTED square footage, bedrooms, bathrooms, and lot size. This creates their base from which to work from. From there, they look at recently sold properties within those areas to determine a base price per square foot. They then compare that data with the sale price of every single home and create a guideline of what price they THINK that specific home is worth based on that data. At a very basic level, it works…from a numbers standpoint, you look at how big the home is, how big the lot is, how many bedrooms and bathrooms it is…and you compare it with something similar to that which recently sold within that area. Or they use a combination of average price per square foot, and come up with an average value.
The Washington Post recently did some research, and determined that only HALF of Zillow’s estimates fell within a 5% range of value…that means more than HALF of estimates are off by more than 5% either OVER or UNDER. Zillow itself claims that 75% of homes sell within a 10% range, higher or lower, and 89% of homes sell within a 20% range…I’d just hate to be one of those homes in the remaining 11%.
The reality is that to come up with a value of a property, you really need to calculate it on a case by case basis. You really need to consider every single home on a case by case basis on its own to come up with a reasonable value. This is something that an algorithm isn’t able to do within a reasonable amount of accuracy.
So for anyone out there, it’s important not to rely on Zillow’s estimates. If anything, just ignore them or use them exclusively just for entertainment purposes only.
For business inquiries or paid one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness @gmail.com
Suggested reading:
The Millionaire Real Estate Agent: http://goo.gl/TPTSVC
Your money or your life: https://goo.gl/fmlaJR
The Millionaire Real Estate Investor: https://goo.gl/sV9xtl
How to Win Friends and Influence People: https://goo.gl/1f3Meq
Think and grow rich: https://goo.gl/SSKlyu
Awaken the giant within: https://goo.gl/niIAEI
The Book on Rental Property Investing: https://goo.gl/qtJqFq
Favorite Credit Cards:
Chase Sapphire Reserve - https://goo.gl/sT68EC
American Express Platinum - https://goo.gl/C9n4e3
Thanks for helping understand the zestimate. I was wondering about it for a very long time. Thanks a lot.
That's a heck of a disclaimer from Zillow.
Zillow is the Kelly blue book of real estate.
When looking at the comps how do l know their condition ?
$1 million dollars??! First off, that's not enough money at all for what you're asking people to do, especially if their solution could prevent future lawsuits. Secondly, this is something their own engineers and data scientists can't figure out??
in this video: Graham doesn't understand how predictive models work and thinks looking at comps is "complicated work"
a
They should call it "Jestimate"
Learned another new point today.
are you old enough to visit a casino, kid? 50% chance of winning are great odds.
Anyone that thinks the Zestimate is an accurate price is an absolute fool. Of course there’s going to be details about a property that can increase/decrease its value. A simple website property search tool will never be able to know and calculate all of these things accurately and on a wide scale.
Anyone that thinks the Zestimate is an accurate price is an absolute fool. Of course there’s going to be details about a property that can increase/decrease its value. A simple website property search tool will never be able to know and calculate all of these things accurately and on a wide scale.
If you wear a mask does the value goes up?
I think realtors hate Zestimates but buyers love them. They tend to be fairly close in my area. But I don't live in LA, where housing prices are insane. Also the vast majority of buyers understand why one house is a lot higher than another.
Everyone likes their estimates until the property tax bill comes.
Some people think their dumps are a pot of gold. Section 8 homes (areas) bring down the value of neighborhoods & attract crime
You didn't expose any lie, you have called something that is openly presented as an "estimate" not 100% accurate, and birds go tweet. A real waste of a video and serious click-bait.
Should use median square foot
If something like that could happen I would venture that would be worth allot more than a million dollars if you created your own listing website or sold it at a premium to other listing agencies
In Texas my property tax is based on appraisals which basically work this same way. What’s your opinion of a tax board appraisal value in relationship to market value? Is a tax appraisal amount a fair prediction of market value? I hired a tax lawyer to fight my tax appraisal value for ignoring the same factors that you mention which impact a property’s actual market value- roof etc…we lost and now my tax rate is locked at a significantly higher amount than when I bought the house two years prior. Is it fair for tax boards to ignore the same thing the zestimate ignores?! The property tax system in Texas is super messed up!
Proof that robotic/A.I is still 1000 years away from being truly useful.
OK , so what you are saying is that those websites use algorithms that look only at the square footage of the home , the lot size, and how many bedrooms and bathrooms the house has and then figure out the price per square foot. Multiply that times the square footage and you have the estimate. But there many other factors that determine the value that these algorithms do not see.
My Zestimate is 20% high yikes
Akuracy
Zillow overstates value to get subscribes = $profit. The same happened when I sold New cars. People say " Kelly Blue Book said my car is worth.. $…. on trade ". We would say ok buy the new car from us and sell your car to Kelly Blue Book .
YouTube, pourquoi donnez moi un avertissement en Francais? Je ne parle pas Francais…
Snap ya fingers! Do ya step!
You can do it all by yo' self!
Let me see you do it! Ay!
Let me see you do it! Ay!
Lol get it bro
Hey man, I haven't looked behind the zestimate algorithms because they're proprietary…, but I'd be truly shocked if one home makes a huge impact unless there's almost no data around. There's a lot that is done in modeling to prevent outlier sensitivity. Also, many algorithms use natural language processing, so they can grab from the description of the home to figure out if there's a 'new/renovated kitchen' and so on. Not saying that these are accurate, but there's probably ways to tickle the zestimate, just like the YouTube algorithm.
An AI deep learning program would be worth way more than $1 mil
One problem with the Zestimate is that the "owner" of the property can "update" info about the property… Erroneously. The single simplest edit is the sqft, which is never vetted, but the Zestimates primary factor is the sqft vs. the sqft value average in the area. So add on 1,000 sqft and watch your Zestimate value soar. Now that's entertainment.
Have you ever tried getting a lakeside property thousands less for one across the street because its not on the water
Yea they would have to at least also get some kind of quarterly payout for continuing to use their algorithm.
Or the prices are highly inflated because investors have been pushing up prices. Now to the point where the average person has little to no desire to purchase.
impeding the home of her sale….
You can send someone in to collect that data. Feed that into the algorithm. That person doesnt need "years" of realtor experience. And collecting that data should not be awarded with thousands of dollars. Then it would be very difficult to make an estimate better than zillow's, when zillow has all the data. Google and Amazon figured out a way to legally track everything you do and are making billions. With things like smart homes on the rise, collecting this data may become easier to automate. The world is only moving one way, and it is foolish to think AI will not replace your job.